Homework Answers
(1) Reserve ratio = 5%
Deposit = $10000
Required reserve = Reserve * Deposit
Required reserve = (5%) ($10000)
Require Reserve = $500
Loan = Deposit - Required Reserve
Loan = $10000 - $500
Loan = $9500
Answer: Option (B)
(10) If Commercial banks start holding some excess reserve instead of lending it out will result in a decrease in money supply compared to the situation when commercial banks do not hold the excess reserve.
Hence, the size of the money supply will be smaller.
Answer: Option (D)
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Refer to the table below and assume that the Feds reserve ratio is 10 percent and...
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is 10 percent and the economy is in a severe recession. Also
suppose that the commercial banks are hoarding all excess reserves
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Finally, suppose that the Fed is highly concerned that the banks
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contribute to inflation once the economy begins to recover and
confidence is restored.
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